How Will Trump's Election Victory Affect the Price of Gold?

The price of gold broke new records in October and is fast approaching the $3,000 mark. At the beginning of November, Donald Trump’s election victory in the United States brought a big daily drop to the gold market, but I don’t see a long-term negative effect on the gold market. Rather the opposite.

The price of gold rose a total of 4.2 percent in October and ended the month at $2,743.6 an ounce. In the last 12 months (since October 2023), gold has risen in price for a total of 10 months. The only fall months are January and June this year. Whereas these monthly decreases have been modest – 1.1 and 0.02 percent, respectively.

The price of gold has already risen by 30.3 percent in dollars this year

The last time the annual appreciation was this big was in 2007, when the price of an ounce jumped 31 percent. Over the past century, the best year for the price of gold has been 1979, when the price rose 133 percent in a year.

November has started with a fall in the gold market. Gold fell 3.1 percent on the day following Donald Trump’s election victory, the biggest daily drop since early June this year.

Trump’s Election Victory Made the Dollar Rise

Trump’s policies are mainly expected to strengthen the dollar. Because of this, the dollar also started to rise after Trump’s election victory, and the yields on US government bonds also started to rise.

The dollar index (DXY), which measures the dollar’s performance against other major currencies, rose 1.6 percent on the day after the election. In currency markets, such daily movements are rather extraordinary. A stronger dollar makes gold more expensive for users of other currencies, making them less likely to buy it.

However, the Federal Reserve announced on Tuesday that it will lower interest rates by an additional 0.25 percentage points. Lower interest rates also tend to put pressure on US Treasury yields, which in turn makes investing in gold more attractive. This led to some recovery in the gold market, and currently gold is trading around the $2,700 mark.

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The price of gold reached a new record on October 30, when the price of an ounce closed at $2,787 an ounce. During the following week, a correction took place, which took gold to $2,643 in the meantime. Thus, there was a fairly healthy 5 percent drop in the market. The dip after Trump’s election victory probably provided a pretty good buying spot for investors looking to put their money in the bullion market and gold investments.

Will Trump’s Election Victory Change the Course of Gold?

Gold did react to Trump’s victory with a big intraday drop, but I don’t think his impact on the gold market will be long-term. Rather, the U.S. finances are in a position that neither candidate has been willing to look at and is unable to address without much pain.

If the car has already driven down the cliff and is rushing towards the ground, it does not matter who is put at the wheel. It doesn’t matter which way you turn the steering wheel. Gravity does its job.

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One of the main reasons why gold is rising is the rapid deterioration of the US national debt and budget situation. If you look at Trump’s campaign promises, they tend to increase spending, not the other way around. Thus, Trump is not expected to significantly improve the US financial situation.

The US economy is made to depend on the growth of the national debt and the budget deficit – so any attempt to balance the budget would significantly damage the economy. I have no faith that Trump would take that risk and be able or willing to explain to his voters why it is necessary.

Gold Demand Rose to a New Record

The gold market was also supported by a new report from the World Gold Council (WGC), according to which gold demand increased to a record level in the third quarter.

In total, demand increased by 5 percent compared to a year ago, to 1,313 tons.

In dollars, demand exceeded 100 billion dollars for the first time

Investment demand doubled in a year, reaching 364 tons. The most important thing is that institutional money has started flowing into gold through exchange-traded funds (ETFs), i.e. large investment funds have also started buying gold in the form of gold coins and gold bars. The funds’ allocation to gold has been very small in recent years, so there is plenty of room for growth.

In a broader context, this is part of a larger process where capital is flowing out of government bonds, considered the “safest asset”. Considering the growth of national debts and the state of budgets, more and more investors realise that government bonds are losing their “safe harbour” status. Gold is becoming the primary security asset and this process will continue over a long time period.

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